From the desk of Kevin Still
The number of customers in arrears with their mortgages continued to fall in Q4 2021 despite the pandemic and the Chancellor schemes closing in September 2021. Possessions fell in the final 3 months of 2021, following a year of increases from a low base, helped by an industry moratorium on possessions over the festive period.
Overall, there were 79,620 homeowner mortgages in arrears of 2.5% or more of the outstanding balance at the end of December 2021, a reduction of 750 homeowner mortgages compared with the previous quarter. This is 5% lower than the same period a year prior.
Within the total, there were 26,850 homeowner mortgages in early arrears (those between 2.5% and 5% of balance in arrears), a decrease of 2% on the previous quarter and 14% fewer than the same period in 2020. These early arrears figures remain substantially lower than the numbers seen before the pandemic began. These will be monitored as interest rates continue to rise through 2022. Inflation, as measured by the consumer prices index (CPI), is expected to peak at 7.25% in April 2022, and average close to 6% in 2022. Interest rates have risen to curb inflation.
Commenting on the data, Eric Leenders, Managing Director of Personal Finance at UK Finance, said:
“Looking ahead, rising inflation and planned increases in National Insurance contributions are likely to squeeze household budgets through this year, creating upward pressure on arrears numbers. Additionally, any further Bank Rate rises in response to inflation will lead to increased mortgage payments for some, although the majority of borrowers are currently on fixed rates and will see no increase whilst on these rates. Despite these additional pressures, responsible lending rules in place since 2014 ensure that mortgages taken out since then have a built-in affordability buffer to cushion borrowers against shocks to income and payments, which will moderate the extent of increases in arrears.
“Lenders continue to provide tailored forbearance and support to borrowers who need help and, as always, we encourage anyone experiencing financial difficulty to contact their finance provider as soon as possible to discuss options available.”
Determining the nature of someone’s mortgage product seems an important piece of information on review and when they will be impacted by interest rate rises. Some 74% of mortgage borrowers in the UK are on fixed-rate deals, so would only see a change in their repayments when their current term ends, according to banking trade body UK Finance. About 1.5m on fixed-rate deals will expire in 2022 and another 1.5m will do so in 2023. Key audiences are the 850,000 homeowners who are on tracker deals and the other 1.1m on standard variable rates (SVRs). They are the people likely to feel an immediate (i.e. February 2022) impact now the Bank rate has risen.
MaPS are recruiting 4 non-executive directors.
David Blunt may be known to a number of you. After 23 years, he is leaving the FCA, most recently as Head of the Conduct Specialists Department in Supervision. For the last 8 years he led the FCA’s work on culture at firms, including the implementation and embedding of the Senior Managers and Certification Regime (SM&CR). He is now moving into consulting to help clients in relation to their culture, conduct, governance and accountability especially in the AM/IM, insurance and banking/payments sectors. He is also considering NED opportunities in those sectors. Probably an example of some of the current talent drain at the FCA where hugely experienced senior leadership team members are leaving during a crucial transitional period.
We have previously featured Jessica Rusu, Chief Data, Information and Intelligence Officer, in DEMSA Blogs. She spoke at the FCA RegTech Forum on 10 February 2022 on the FCA’s approach to regulatory innovation and SupTech.
The full forum is available to watch on demand.
I think that I spotted that Lantern and Denise won another award. The CCTA newsletter covers a number of interesting stories including input from CIFAS, Data on Demand, Lantern and VRS.
I will continue to monitor the recent announcements from Experian (US) and Transunion around the inclusion of BNPL data in their core propositions in the UK and globally. There appears to be similar developments ongoing in the US. The addition of BNPL data to UK credit files follows extensive industry consultations and acknowledges key recommendations from the Woolard Review in February 2021 and the subsequent HM Treasury consultation. This data will start to appear on consumer credit reports from Summer 2022. Consumer protection has been central to the changes and new search footprints are being introduced to enable consumers and lenders to see applications for this kind of finance. Which? looks at how a TransUnion credit score could be affected by the change and whether other credit reference agencies (CRAs) are likely to follow suit – which seems inevitable. Equifax is using Open Banking technology ‘to give an accurate picture of affordability to our lenders.’
ISO 22458 – Consumer Vulnerability (BS 18477)
I am continuing to explore this standard with ISO and more widely with potential adopters as the new standard is expected to be published in April 2022. I have an earlier draft.
Firm benefits of adopting an ‘inclusive service approach’
The ISO 22458 standard specifies requirements and gives guidance for firms on how to provide an inclusive service at all stages of service delivery, helping them to identify and support consumers in vulnerable situations. Adopting an inclusive service approach offers many potential benefits for firms adopting the standard:
- greater alignment with regulatory best practices (e.g. FCA vulnerability guidance)
- an increased customer base by making services accessible to greater number of individuals
- an improvement in the quality of consumer interactions, and minimising the risk of harm
- a reduced likelihood of problems and complaints, a reduced cost of dealing with consumer problems and complaints, by operating effectively and getting things right first time
- improved customer satisfaction, building consumer trust and enhancing the firm’s reputation
- demonstrating ethical behaviour and social responsibility
- workplace wellbeing – strengthening staff loyalty and engagement by ensuring that they feel valued, supported and confident in handling difficult situations with increased capability
- helping to achieve compliance with regulatory and legal obligations related to fairness and equality, by following good practice in the fair treatment of consumers in vulnerable situations.
To be truly effective, ISO state that change should be led from the top and be embedded throughout the firm. This is consistent with the FCA messages around culture and the over-arching GRC and Conduct Risk frameworks. Senior management (i.e. SMFs) should have a shared understanding of the principles and be committed to improving outcomes for vulnerable consumers that interact with their firm. This will directly align with the FCA Consumer Duty.
There needs to be evidence of adequate resources to design and implement a flexible and inclusive service that is able to identify and meet the needs of consumers in vulnerable situations. A social (i.e. under CSR framework) or business case for change can be used to gain board commitment and to then raise further awareness of the benefits of inclusive service delivery.
- Culture & strategy
- Inclusive design and tools for delivery
- Identifying consumer vulnerability
- Responding to consumer vulnerability
- Continual improvement
If anyone is interested then drop me a line. There will definitely be synergies for those that have completed the ISO 27001 process and risk assessments (attached).
Link: https://www.indesser.com/blog/video/a-new-approach-to-vulnerability-view-from-a-dca – I am speaking with TDX Group on 15/2/2022
FCA expectations of Compliance Oversight and MLRO roles
This is a fairly important message from the FCA for those in SMF roles, notably SMF16 (Compliance Oversight) and SMF17 (MLRO). These roles are also often held by directors of regulated firms. This comes at a time when the focus on money laundering (AML), financial crime and perpetual KYC checks (including vulnerability assessments) has reached new heights under the proposed Consumer Duty (CP21/36 closes on 15/2/2022) with a target implementation of April 2023. For larger firms, operational resilience is very topical at the moment.
From the days of APDSI to the merger with DEMSA in 2015, we have run compliance forums and bespoke training for firms in our sector. This has included tailored support around key topics like Vulnerability, SM&CR, Consumer Duty, Risk Management and Quality Management Frameworks. We are increasingly focusing on FinTech, PayTech and RegTech as operational resilience, cyber resilience and other digital transformation challenges come to the fore.
The Credit Services Association (CSA) was also showcasing some of their compliance training/apprenticeships last week. The FCA have stated that they have found courses with an examination or assessment are better in demonstrating that a designated SMF role has gained the relevant knowledge and skills.
The FCA update provides some useful tips on assessing competence and capability in key roles whether going through the application process or maintaining competency if subject to future supervisory visits.
I hoping to feature a few more examples in the digital collection space over the coming weeks with a number of emerging players (e.g. Ceverine, DebtStream, Flexsys, The Digital DRA) and existing players (e.g. Firstsource). We look at how the emerging ecosystems join up with the debt advice sector and some of the best practice providers of data, affordability assessments and vulnerability assessments. We have a number of established software providers on the circulation (e.g. C & R Software, Qualco, Telrock, Ascendant Solutions), all of whom have digital propositions. Along with some of the debt solution platforms, these platforms, systems integrators and BPO providers hold the key to delivering best practices at scale.
The CSA launched their online collections learning platform this week as National Apprenticeship Week comes to a close. From having run the DEMSA L & D platform with Victoria, I can only agree with Chris Leslie, CSA CEO, that “Keeping teams up to date with the latest training and regulations isn’t always simple”. The CSA L & D team under Fiona has developed bite-sized and easily accessible online modules to ensure firms across debt recovery sector have access to new skills at their fingertips.
Levelling Up minister announces new Parking Fine Code of Practice
On first inspection, the reduction of parking fine limits to £50 per fine and the requirement for more breathing space and consistent fine collection all seems positive news for UK parkers (apart from in Northern Ireland).
I am sure we all have our own war scars from getting a parking fine from a free parking venue where something goes wrong (e.g. Promoted free hotel parking at a DEMSA event). There is a disconnect between the customer service at the venue (wanting your business) and the agents supervising the car park.
Minister Neil O’Brien has commented on the new Code of Practice and Appeals Charter in the release below, designed to make practices fairer and more consistent for those that aren’t habitual offenders (e.g. parking in Blue Badge spaces without a badge).
“Private firms issue roughly 22,000 parking tickets every day, often adopting a system of misleading and confusing signage, aggressive debt collection and unreasonable fees designed to extort money from motorists.
“[Our] new Code Of Practice will set out a clear vision with the interests of safe motorists at its heart, while cracking down on the worst offenders.”
A 50% discount applies if fines are paid within 14 days, as with council-issued fixed penalty notices. A 10-minute grace period applies before a fine can be issued. Both the AA and RCA has been lobbying strongly on this. DEMSA welcomes fair dispute resolution and debt recovery practices.
The BBC story highlights how fines can accumulate, especially for repeat usage of an apparently free parking service (e.g. at a membership gym or hotel) where the process breaks down and there may not be the equivalent of a traffic warden.
ICO: Anonymisation, pseudonymisation and PET guidance
Whilst the Information Commissioner’s Office call for views may seem a slow burner with a consultation closure date of 16/9/2022, some of the topics are important for the FinTech firms focused on AI/ML and data analytics more widely.
The ICO has published the third chapter of the ‘Anonymisation, pseudonymisation and privacy enhancing technologies (PET) guidance’. Chapter 3 on ‘pseudonymisation’ explains the key differences between pseudonymisation and anonymisation. They also explore how pseudonymisation can help to reduce risk and allow personal data to be processed for other purposes.
The ICO has stressed that input at this early stage can make a significant difference as they use the responses to inform their work in developing the guidance. This needs to be aligned with the government’s wider UK GDPR reform.
DEMSA is encouraging firms in our sector to actively participate where this is important to their future operating models where data sharing and data-drive approaches are becoming critical success factors.
The ICO has also been reminding registered firms around the need for a data protection impact assessment (DPIA) before starting major projects involving personal. You are reminded that your firm must do a DPIA for processing that is likely to result in a high risk to individuals. This includes some specified types of processing. To assess the level of risk, you must consider both the likelihood and the severity of any impact on individuals. High risk could result from either a high probability of some harm, or a lower possibility of serious harm.
Credit-Connect Think Tank review – 3/2/2022
Colin has published a review of the event on 3/2/2022 that DEMSA supported.
Financial Inclusion Virtual Summit – 15 February 2022
The Commission is delighted to be hosting our first Financial Inclusion Virtual Summit on 15 February 2022 in partnership with the MaPS and UK Finance.
Policy in Practice – 23/2/2022
VRS – 24/2/2022
Blog: Covid-19, equity release and vulnerability
My thanks to Andrew Gething and Chris Jones for picking up on this vulnerability survey. They have set-up a LinkedIn group around the impact of the Consumer Duty, which I have been contributing to.
There are several seemingly obvious findings in this Blog around potential vulnerabilities when dealing with the over-55 customer segment, but the strategies for tackling the identification and engagement challenges are less obvious. The survey of UK-based advisers operating in the later life lending space highlights the need for effective identification, monitoring and adviser training toolsets around vulnerability.
Clearly, the FCA Consumer Duty will place more burden on evidence gathering and record keeping by regulated advisers, notably in the featured equity release market. Equity release can be a component of debt remedies, but requires specialist advice and requires a transparent audit trail of events. For example, StepChange and Payplan offer consumers help on the options around equity release.
I suspect that there may not be a major bounce back to in-person meetings, though there appears to be a view that family involvement may increase, which may be applicable to the Hope Macy Family Connect proposition. All advisers questioned noted that the restrictions on in-person contact with clients had made it harder to spot signs of vulnerability. 30% agreed that the increased difficulty of involving family during this time had also made this more challenging.
With the cost of later life borrowing likely to rise through 2022, equity release may increasingly feature as an option for new and existing debt solution customer. It is a factor to consider where a customer turns 55 during the course of a debt solution, as is the expected date of someone’s retirement.
In the news
ITV partners with Ecospend to offer ‘pay-by-bank’ services for ITV Win competition – 10/2/2022
Ecospend’s open banking payment method will launch on the ITV Win website and could potentially later offer an off the screen QR code functionality to let viewers pay for an ITV win entry directly from the screen.
As a result of the partnership, payment processing times will become instant and bypass all card processing fees, acquirer fees and issuer fees. As such, ITV will be able to significantly reduce the cost of processing payments. It will be ITV’s most cost-effective payment solution to date, allowing them to pay a fraction of the cost of regular card transactions.
How Payment Initiation Service Providers (PISP) are changing the way citizens pay online
A Payment Initiation Service Provider (PISP) bypasses the requirement for payment through third party services, such as Visa or MasterCard. Instead, PISP enables users to pay from their bank account to the merchant with excellent security and transparency.
They have used a local authority case in the article below. As a build on the parking fine story above, a consumer needs to pay for a service online such as a penalty charge notice. The consumer initiates the transaction by selecting the product/service required, which can be triggered in different ways, such as accessing a QR code or an online payment page. When prompted, consumers are given the option to pay via their own bank account. PISPs will only initiate these account services if the consumer gives consent by selecting the ‘pay by bank method’.
This payment process uses a banking API that enables an easy and secure way of exchanging data. The PISP uses the banking API to pay from the consumer’s bank account (i.e. it pushes the funds from the consumer’s account to the local authority’s account).
PSR finalises plans for the wider implementation of fraud prevention tool
The Payment Systems Regulator (PSR) has confirmed and published a new rule that paves the way for more banks and building societies to adopt Confirmation of Payee (CoP), the bank account name checking service. Commenting on the rule, Genevieve Marjoribanks, Head of Policy at the PSR said:
“Confirmation of Payee is a key part of our fight against APP scams, and this new rule is an important step in taking protections to the next level. Today, we have made it clear to the industry the work that needs to be completed by the end of May to ensure that the right systems are in place to offer this vital protection to more people.
“Used more widely, this service will make sure that everyone who makes payments will benefit from the same levels of protection as that currently offered by the directed banks and those that voluntarily implemented the checking system.”
The PSR published their strategy in January 2022.
Just – What to expect in 2022
Some key bullets in the Just horizon scanning piece that I am sure will be familiar discussions within your own firms:
- BNPL culture will progress
- Data analytics is critical
- Digital transformation will continue at pace
- More outsourcing to trusted providers
- The curse of late payment for small firms
- The impact of inflation, return to office and rising energy costs on consumers disposable income
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